Elasticity of demand
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This document discusses the concept of elasticity of demand in economics. It defines elasticity of demand as the percentage change in quantity demanded divided by the percentage change in a determinant of demand. The key determinants discussed are price, income, and the price of related goods. The document outlines different types of price elasticity including perfectly elastic, perfectly inelastic, relatively elastic, and relatively inelastic. It also discusses methods for measuring price elasticity including percentage, point, and arc methods. Finally, it covers income elasticity and cross elasticity as well as factors that influence elasticity and applications of elasticity concepts.
Elasticity of demand
- 1. Elasticity Of Demand Managerial Economics
- 2. Concepts Of Elasticity Of Demand Two Variables are considered while measuring the elasticity of demand :- Demand Determinants Of Demand Elasticity Of Demand = percentage change in quantity demanded percentage change in determinant of demand
- 3. Types Of Elasticity Of Demand Demand Price Elasticity Cross Price Elasticity Income Elasticity Advertisement Elasticity
- 4. Price Elasticity Of Demand The price elasticity of Demand may be defined as the ratio of the relative change in demand and price variables. e = percentage/proportional change in quantity demanded percentage/proportional change in price
- 5. Types Of Price Elasticity Price Elasticity Perfectly Elastic Perfectly Inelastic Relatively Elastic Relatively Inelastic Unitary Elastic
- 6. Perfectly Elastic Consumers have indefinite demand at a particular price and none at all at an even slightly higher than this given price, demand is PERFECTLY ELASTIC e = ∞
- 7. Perfectly Inelastic When the demand for a commodity shows no response to a change in price/ whatever change in price, the demand remains same, it is called PERFECTLY ELASTIC e = 0
- 8. Relatively Elastic When the proportion of change in the quantity demanded is greater than that of price, the demand is said to be RELATIVELY ELASTIC e > 1
- 9. Relatively Inelastic When the proportion of change in the quantity demanded is less than that of price the demand is considered to be RELATIVELY INELASTIC e < 1
- 10. Unitary Elastic When the proportion of change in demand is exactly the same as the change in price, the demand is said to be UNITARY ELASTIC e = 1
- 11. Measurement Of Price Elasticity Measurement Of Price Elasticity Percentage/ Proportionate Method Geometric/ Point Method Arc Method
- 12. Point/Geometric Method This method attempts to measure the price elasticity of demand at a particular point on demand curve Point Elasticity = Lower segment of demand curve below the point Upper segment of demand curve below the point
- 13. Arc Elasticity Of Demand Arc Elasticity of Demand measures the elasticity at the mid point between two points on a curve
- 14. Income Elasticity Of Demand The income elasticity is defined as a ratio percentage or proportional change in the quantity demanded to the percentage or proportional change in income. Income Elasticity = percentage change in quantity demanded percentage change in income
- 15. Cross Elasticity Of Demand The cross elasticity of demand refers to the degree of responsiveness of demand for a commodity to a given change in the price of some related commodity. Cross Elasticity Of Demand = Proportionate/percentage change in demand for x Proportionate/percentage change in price of y
- 16. Factors Influencing Elasticity Of Demand • Nature of commodity • Availability of substitutes • Number of uses • Consumers income • Height of price and range of price change • Proportion of expenditure • Durability of the commodity • Habit • Complementary goods • Time • Recurrence of demand • Possibility of postponement
- 17. Application Of Income Elasticity Long term business planning Market strategy Housing development strategies
- 18. Practical Applications To businessmen To the government and finance minister To international traders To policy makers To trade unionists
- 19. Thank you